Apple and Google totally control what you do on your smartphones. We need fair rules.

Apple and Google have put a stranglehold on our mobile phones. Their app stores and operating systems have become so dominant, Congress and statehouses are calling executives to come testify and explain themselves at a record pace. 

Multiple states are now advancing bills aimed squarely at Apple and Google’s anticompetitive practices, and app developers are challenging Apple’s policies in courts. 

This scrutiny is long overdue. It’s time to set fair rules for the sake of consumers and businesses that use these platforms.

When the iPhone was launched in 2007, there was no such thing as an app store. People were still using mobile phones primarily for calls and texts. That’s far from reality today, as apps are now the backbone of any smartphone. Whether you’re browsing the internet, sending an email, messaging a friend, mapping out a road trip or streaming music, you’re likely doing it with an app. 

Lack of competition costs us money

Virtually all smartphones run on either Apple’s iOS or Google’s Android mobile operating systems. This has been the case for nearly a decade. A consumer typically uses either an Apple or an Android smartphone, not both at the same time. That gives Apple and Google absolute control over the terms and conditions for almost all transactions on smartphones. Smartphones have become the linchpin of our digital ecosystem, and the apps on smartphones are increasingly the primary mode for consumers to access online services – both inside and outside their homes. 

This domination of the mobile marketplace is highly lucrative. Apple’s gross app store revenue in 2020 increased to over $70 billion, and Google’s up to nearly $57 billion. 

So it’s not terribly surprising that the two have imposed rules for their app stores that entrench their dominant positions at the expense of their captive users – both the consumers who use their smartphone systems, and the businesses that sell apps and services to them. 

iPhones on Sept. 16, 2016, in Chicago. (Photo: Kiichiro Sato/AP)

One example of this unchecked power is that Apple and Google prohibit payment solutions in their app stores other than their own. This enables them to charge a 15% to 30% service fee on sales through their app stores, and on an ongoing basis on digital sales via apps. 

Consumers face higher prices when part or all of these fees are passed on to us. Paying this higher price is not a choice that people actively make. They often aren’t even aware that they can buy the same service for a lower price, or with added benefits, outside the app store. That’s because Apple and Google explicitly prohibit app developers from communicating this fact to consumers.

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Lawmakers should prohibit Apple and Google app stores from mandating this payment exclusivity. A number of recently proposed state bills would do exactly that. Across the pond, both the United Kingdom and the European Commission are investigating Apple’s app store policies.

But the problems don’t stop there. Apple and Google’s own apps are often set as the default choice. Those apps don’t have to pay the 30% commission, and they may get preferential ranking in app store search results. Third-party apps are artificially disadvantaged. Consumers might not end up buying or using apps that best serve their needs.

Third-party apps must be competitive

That’s why we need market rules to ensure that third-party apps can compete with Apple and Google’s own apps on fair terms. This should include nondiscrimination requirements and restrictions on the use of marketplace data to compete in the retail market. Some state bills, like one in Massachusetts, would do this.

These rules should restrict self-preferencing for Apple or Google’s own apps in store search results and in setting default apps for key functions like email, search and smart voice assistants. Third-party apps should also have equivalent access and interoperability with the underlying mobile operating systems and mobile device functions, like payment chips and Bluetooth capabilities, to Apple and Google’s own apps. 

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This would allow businesses other than Apple and Google to innovate freely on smartphones, leading to more innovation by all companies – big and small – to the benefit of consumers. 

These targeted solutions would strike the right balance between introducing more competition on smartphones and preserving Apple and Google’s incentives to keep developing their mobile ecosystems. Lawmakers at the state and national level need to take action to help balance the playing field and create a marketplace that is more fair and competitive for all.

Economist Sumit Sharma is a senior researcher for technology competition at Consumer Reports.

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